Editor’s note: Beth Schneider is the chair of the AICPA Sustainability Task Force under the Auditing Standards Board.
Corporate and public interest in sustainability and climate change issues, and voluntary reporting of greenhouse gas (GHG) emissions information, has grown significantly in the United States during the last decade. Companies have begun to request that assurance providers from engineering to public accounting firms perform engagements to provide a moderate level of assurance, a review under the AICPA Attestation Standards, on their sustainability reports or GHG emissions information. Some companies are even requesting reasonable assurance, an examination under the AICPA Attestation Standards, on GHG emissions information. A few organizations are writing their own standards for assurance or verification protocols in these areas.
In 2012, the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants issued International Standard on Assurance Engagements (ISAE) 3410, Assurance Engagements on Greenhouse Gas Statements, to perform both “reasonable” and “limited” (known as “moderate” in the United States) assurance engagements on GHG statements.
The Climate Registry, a California organization that oversees a voluntary GHG emissions reporting program for North America, has developed its own verification protocol. Organizations registering their GHG emissions information with The Climate Registry are required to have their information verified to participate in the registry. The Climate Registry is interested in expanding the population of accredited verification bodies to include CPA firms. Currently, such verifications are being performed by engineering, sustainability, and environmental consulting firms, and other forms of certification or verification bodies.
WHY THE CPA?
The public accounting profession has a long history of developing and working with assurance methodology from financial statement audits and reviews to audits of the effectiveness of internal control, and for various industries. CPAs have experience with numerous types of systems, information processes, and control frameworks. Such experience has developed the CPA’s capability to identify control weaknesses and other risks of misstatement. An integral part of a sustainability reporting or GHG assurance engagement will be the consideration of the controls over the capture, calculation, and accumulation of various types of nonfinancial information, including GHG emissions.
The world is ever-changing, requiring CPAs to learn new subject matters and develop new specializations; accordingly, CPAs are typically not fazed by the need to learn and develop new skills. CPAs will need to learn new terminology and scientific concepts, particularly with respect to GHG emissions information, to accept the attest engagement. CPAs also will need to have an understanding of the nature of various business risks to an organization and the relationships within nonfinancial information and between nonfinancial information and financial information to provide assurance on sustainability reports.
CPAs can leverage their knowledge as financial statement auditors when providing assurance on sustainability reports, which cover a variety of economic, environmental, and social matters, or GHG emissions information. However, any skepticism about CPAs becoming involved in the area of GHG emissions reporting may be put to rest when there are financial statement effects to deal with, such as the monetization of reductions of GHG emissions in the form of credits that can be bought and sold, or the incurrence of liabilities for exceeding regulatory limits. Accordingly, the time is right for learning about sustainability and GHG emissions reporting, and providing assurance thereon.
HURDLES TO CPA PARTICIPATION
Despite the advantages that CPAs possess to participate in the sustainability and GHG space, a number of hurdles need to be overcome. Consulting and engineering firms are currently providing the majority of assurance services in this area. Few recognized methodologies exist for providing assurance outside of the public accounting realm, so organizations are developing their own methodologies. As a result, professionals outside of accounting firms may be using less rigorous methodologies for providing assurance than would likely be followed by CPAs. This could make it more difficult for CPAs to compete with such other organizations from a fee perspective.
External concerns about whether any players in this space are qualified to provide assurance have led to several organizations’ setting up accreditation requirements. For example, The Climate Registry has instituted requirements for verification bodies to become accredited under the International Organization for Standardization’s ISO 14065 to provide assurance under The Climate Registry’s voluntary GHG emissions reporting program. Such accreditation requirements include the accreditation body (currently, the American National Standards Institute, otherwise known as ANSI) assessing compliance with ISO 14065 as well as additional accreditation criteria of The Climate Registry (e.g., reviewing the verification body’s operations, management, governance, and internal processes for quality control; shadowing the assurance team as they perform verification engagements, such as their first verification under The Climate Registry’s verification protocol; as well as follow-up checks subsequent to receipt of accreditation, which are referred to as surveillance assessments).
Whether a CPA firm or an engineering or environmental organization provides assurance on GHG emissions information on a stand-alone basis or as part of a sustainability report, a multidisciplinary team that includes an assurance specialist and a technical specialist with an engineering or scientific background is most likely necessary. This may breed an entirely new form of professional designation in the future that combines the knowledge of CPAs with that of engineers and environmental scientists.
Today, the lack of double-entry bookkeeping in these areas and the scientific aspects may be outside many CPAs’ traditional comfort zone; accordingly, some may need to overcome self-doubt. Increasing understanding of the calculations and methodologies used to measure GHG emissions and other nonfinancial measures may bring things into perspective. Firms will need to consider how they employ specialists for a financial statement audit. Full-service public accounting firms are more likely to have technical or engineering resources in-house, while some firms may choose to use external specialists.
Whether or not firms choose to provide these new assurance services, increasing their knowledge in these new business aspects will help solidify the CPA as a trusted business adviser. For example, companies are also seeking assistance in identifying risks and gaps in their sustainability and GHG reporting processes. This is another area where CPAs can add significant value.
THE ROAD TO ASSURANCE
The number of U.S.-based companies seeking external assurance on their sustainability reports continues to grow. The majority of these companies are seeking a moderate level of assurance, or a review. Companies also are seeking assurance on a variety of other sustainability-related assertions. While the existing attestation standards provide a framework for performing such services, specific application guidance in these areas needs to be developed. Accordingly, the AICPA Assurance Executive Committee (ASEC) Sustainability Assurance and Advisory Task Force was formed in 2012 to explore services opportunities in these areas and will be devoting attention to developing guidance for the application of the existing attestation standards to the subject matter of sustainability reporting and related assertions.
The AICPA previously issued Statement of Position (SOP) No. 03-2, Attest Engagements on Greenhouse Gas Emissions Information, to provide guidance to CPAs on how to apply the attestation standards to GHG emissions reporting for an examination level of service with the expectation that it would be used to satisfy requirements for assurance in connection with GHG trading programs or regulatory submissions. However, the first requests coming through for assurance in the United States are not to satisfy regulatory requirements but, rather, appear to be from companies that are voluntarily looking to add more credibility to information that they are publicly reporting. As a result, they are seeking assurance for this purpose at a more cost-effective level than an examination.
To respond to this need, the AICPA developed application guidance on how to apply the attestation standards for a review engagement to the specific subject matter of GHG emissions information, resulting in April's issuance of SOP No. 13-1, which supersedes SOP No. 03-2.
One of the most significant difficulties encountered in the development of ISAE 3410 was how to clearly delineate the scope of work between the two levels of assurance. How do the nature and extent of procedures differ? One significant difference between GHG emissions and financial statement attest engagements is that there is no double-entry bookkeeping in GHG emissions reporting, for which a range of analytics and inquiries might be performed, as there is for financial statements. Accordingly, performing analytics and inquiries alone with respect to GHG emissions information might not yield sufficient evidence for the limited assurance conclusion to be formed (otherwise known as “negative assurance” in the United States). As a result, some detail testing by corroboration with independent evidence may be necessary in a limited assurance engagement.
SOP 13-1 provides guidance on the types of analytics and inquiries that might be performed in a review engagement and recognizes that the practitioner may need to perform other procedures to obtain an appropriate level of assurance. As GHG emissions information is included in sustainability reports, CPAs will need to get comfortable with testing such information if they want to provide assurance on the broader subject matter of a sustainability report.
The Climate Registry has issued its own protocol for verifying GHG emissions information. While such a protocol is intended for reporting under the voluntary registry program only, U.S. regulators, when considering implementing requirements for assurance, have been looking toward The Climate Registry’s verification protocol as the methodology to be followed. Currently, the verification protocol contains requirements (e.g., preclusion to the performance of any other attest services for the client and the required form of report) that are in direct conflict with the AICPA Professional Standards; however, the AICPA has been working with The Climate Registry to try to resolve such conflicts and, thus, enable CPAs to participate in GHG assurance engagements under The Climate Registry’s verification protocol in the future.
Providing assurance on sustainability reports or GHG emissions information will require multifaceted skill sets, including sufficient knowledge regarding nonfinancial measures (and, in particular, GHG measurements and calculations); the capability to understand the processes for capturing the data and the controls over sustainability and GHG emissions reporting (including with respect to a variety of nonfinancial measures); and in-depth knowledge of the methodology for providing assurance.
The AICPA and other organizations continue to work to bridge the gaps that would prevent public accounting firms from providing GHG assurance. The need to take action and prepare for the possibility of future regulatory requirements in a carbon-constrained society for assurance on GHG emissions information is here.
CPAs should consider planning their direction now for services in these areas.
Editor's note: Also read "The assurance market for sustainability reporting," May 2013.
CPAs are well-suited to provide assurance on sustainability reports and greenhouse gas (GHG) emissions information. They possess strong assurance methodology; experience with numerous systems, information processes, and control frameworks; the capability to identify weaknesses and other risks of misstatement; and the capability to learn new subject matters and develop new specializations.
CPAs need to overcome certain hurdles to providing assurance in these areas, including competing with non-accounting firms that may be using less rigorous methodologies, likely resulting in lower fees; potential accreditation requirements (such as in the area of GHG emissions assurance); and possibly their own self-doubt.
Developing guidance for the application of the existing attestation standards to the subject matter of sustainability reporting is currently one of the areas to which the AICPA Assurance Services Executive Committee (ASEC) Sustainability Assurance and Advisory Task Force, formed in 2012, will devote attention.
Guidance for applying the attestation standards to GHG emissions information has been developed. In April, the AICPA issued SOP 13-1, Attest Engagements on Greenhouse Gas Emissions Information, for examination- and review-level services. Other organizations, such as The Climate Registry, are developing their own methodologies.
Consideration of controls over the capture, calculation, and accumulation of nonfinancial measures, including GHG emissions information, will be an integral part of a sustainability or GHG assurance engagement.
A carbon-constrained society will likely create a further need for CPAs to take action in this area. If monetary amounts are eventually assigned to GHG emissions information, CPAs will need to understand GHG emissions-related concepts to address the financial statement effects.
Beth A. Schneider ( firstname.lastname@example.org ) is a director in the Audit & Assurance Services group of the national office of Deloitte & Touche LLP in Wilton, Conn., and chair of the AICPA Sustainability Task Force under the Auditing Standards Board.
To comment on this article or to suggest an idea for another article, contact Neil Amato, senior editor, at email@example.com or 919-402-2187.
“AICPA Participates in International Accounting Sustainability Forum,” March 2012, page 75
“Sustainability Can Be Justified With Proper Valuation,” Corporate Finance Insider, June 7, 2012
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Statement of Position (SOP) No. 03-2, Attest Engagements on Greenhouse Gas Emissions Information
The Sustainability Reporting and Assurance area of AICPA.org provides resources to enable members to add value to their company and client sustainability initiatives, including resources on sustainability reporting and assurance services
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the Global Conference on Sustainability and Reporting in Amsterdam,